Swiss pension funds can contribute to a positive impact on climate change by investing in start-ups through early-stage venture capital (VC) funds, according to a report by association Swiss Sustainable Finance (SSF).
Direct investments in early-stage ventures represent in fact a high risk for investors, the report stated, adding that early-stage VC funds instead help diversify risks while at the same time making investments in start-ups “accessible” for institutional investors.
Institutional investors would find an avenue to deploy capital to mitigate climate change in start-ups operating in sectors such as foodtech and agritech, clean energy and transportation, and sustainable industrial processes, for example recycling technologies or capture and storage of carbon dioxide.
In Europe, VC funds that can channel capital for climate impact ventures include High-Tech Gründerfonds and Munich Venture Partners in Germany, ETF Partners in England, Loudspring in Finland and Übermorgen Ventures in Switzerland, according to SSF’s report.
The research lists a series of financial tools for the transition to a low-carbon economy, referring also to thematic equity funds used to pursue sustainable investment strategies.
The funds would invest to support the transition to sustainable forms of energy production through renewable energies or energy efficiency, as “supplement” to private-markets, the report said.
Investors can take part in IPOs or “seasoned new issues” of companies with small and medium capitalisation to reduce the cost of capital and provide a source for research sand development activities to drive innovation, it added.
One critical segment for energy transition is “enabling technologies”, such as power semiconductors, energy storage and smart grids.
Thematic investing funds for investment in public markets may steer capital to companies developing technology to build electric vehicles in the auto industry to reduce emissions.
For real estate, the report suggested direct investors to review their portfolios with regards to sustainability, retrofitting and new projects, while indirect investors should compare traditional funds with sustainable alternative real estate funds.
The lack of data on the energy efficiency and consumption of individual buildings is an obstacle for direct real estate investments.
According to the Swiss Federal Office for the Environment (FOEN), buildings are the second source of CO2 emissions after transport with 26% of the total 47.2 million tons of greenhouse gases released in the atmosphere.
Applying an active management strategy, including comparing real estate assets, would improve the energy consumption and the level of CO2 output levels in a portfolio, it added.